When companies only forecast to the end of the financial period, the focus of the process becomes performance, evaluation and commitment to pre-defined targets, instead of organizational direction, risk mitigation and the seizing of opportunities. To avoid this common pitfall and improve visibility across the business cycle, employing rolling forecasts would allow finance executives to better assess both financial and operational plans by projecting four to six quarters ahead.
Rolling Forecasts
Many leading companies use rolling forecasts to respond more quickly and efficiently to shifts in market conditions. However, despite their obvious benefits, there are also some pitfalls, which we’ll help you to avoid:
Pitfall 1- Confusing Forecast with Targets
Many organizations misuse forecasts by blending both current trends and the anticipated results of action plans on a single forecast line obscuring the details of what actions actually need to occur. Instead, project the current trend line separately and overlay explicit discussion of corrective action plans.
Pitfall 2- Demanding Forecast Accuracy in an Unpredictable World
Even the most sophisticated companies can’t precisely forecast the behavior of their key business variables – pricing, competitor actions, consumer sentiment, etc. The complexity of events makes it virtually impossible to accurately predict, much less control, for a specific outcome. Nevertheless, the consistent use of rolling forecasts can provide essential information for decision-making and help shape outcomes, not to predict the future.
Pitfall 3- Reliance on Spreadsheets
Rolling forecasts require integrated cross-company communication and collaboration, iterations of budget assumptions, consolidation and security of financial data. These requirements make the use of spreadsheets, which can lead to excessive time demands and cumbersome validation processes, ill-suited for rolling forecasts. Indeed, a recent benchmark survey found companies that rely on spreadsheets typically take 30 days longer to complete budgets than those with integrated, open information systems that provide real-time, read-write budgeting, forecasts, planning and analytics, flexible modeling, and scalability.
For more information on the “Do’s and Don’ts of rolling forecasts, check out the white paper from IBM’s Innovation in Action Series: Managing through change: The power of rolling forecasts..
To learn how Meritus can help you successfully implement rolling forecasts, contact us at info@meritusllc.com or 650.380.8515.
